Mobile has a very high ceiling and very thin columns

In the first post of the series I wrote that the split runs through the business model, not the platform. This is the second one and it is about money models, which is where the real misunderstanding sits.

So this is not a comparison of mobile and Steam either, it is a comparison of F2P and premium. Because mobile is almost entirely F2P, people take the economics of F2P for the economics of mobile, when the same arithmetic applies exactly the same way to someone doing F2P on PC. It is also beyond argument that mobile has far more users than PC and console put together. It is more accessible and it speaks to more people, so a bigger volume of money is unavoidable. That is why you keep hearing the sentence “mobile makes more money than PC and console combined”. But the money in that sentence is revenue, not profit, and UA eats the difference. Most of the people saying it have never worked out whose pocket that difference comes out of. Once you take UA spend out, the picture is usually neck and neck. Mobile’s real contribution is somewhere else anyway. It introduced billions of people who never held a console in their lives to games.

Let us start with the F2P revenue number on mobile. ROAS now moves between 120% and 150%, and that is today’s hybrid casual number, so between 67% and 83% of the revenue already goes back into UA. On the hyper casual side organic is close to nonexistent, and largely so on the casual and hybrid casual side too, so this ratio is not limited to the part that came in through UA, it hits the whole revenue directly. In the number Liftoff drew from 2.4 billion installs, D30 ROAS for casual on Android is 15%, meaning only a seventh of the money you spend comes back within the first month and the rest spreads over the following months. If you follow the Two and a Half Gamers podcast you will see this arithmetic come up constantly.

To be left with $1M in profit you need $6M in revenue at 120% ROAS and you have to spend $5M of it on UA, at 150% it is $3M in revenue and $2M in UA cost. On the premium side you usually keep 52-56% of the number you see in gross, so $1.9M is enough for that same $1M, and relatively speaking there is almost no line item called UA. Team, server and tool costs sit on top of that in both cases. ROAS is also not a fixed number, the more money you spend the smaller it gets. Hitting 120% on $5M of UA spend is much harder than hitting it on $500k, which is why chasing that $1M by scaling up does not work.

But when a $6M game and a $1.9M game show up side by side in the news, one looks three times the other, then come plenty of rocket emojis for mobile, when in fact both are left with the same $1M in their pocket.

I am not saying premium is easy. On a game with a $7 tag that $1.9M means 270k copies, a lot more than that once you count discounts, and it is a very hard number to reach. In the same way, $1m of profit on mobile is no easy job either.

On top of that, this arithmetic is set up in mobile F2P’s favour. If you measure ROAS on the revenue you book in your own ledger, this is the picture, if you measure it on gross IAP then the store’s 30% comes out of it as well and the picture drops further.

The objection to this will be predictability, and there is something to it, in F2P you can see where you are heading as early as D7, in premium you do not know for sure until launch week. But if you start working out the ratios, for every game that succeeds on mobile there are far more that fail, and once you run that number Steam probably comes out ahead. And predictability mostly means seeing early that the thing is not going to work.

Cash flow is a separate subject. On mobile a lot of parties take a commission along the way and at the end of the chain you only get your money 3 months later, so you pay for UA out of your own pocket today and see the return a quarter later. The IAP side looks like Steam, but there are commissions there too. This is why outside capital is needed, the hard part is the financing more than the work itself. In premium you can launch without spending anything, in F2P you cannot even start without putting money at risk, and once you have found the game the cost of starting begins at $50k at the least, because there is no organic reach.

The delay itself is a separate cost. On $6M of annual revenue, collecting over three months means $1.5M is locked up outside at any given moment. That money loses value while it waits and, because it is locked, it goes into neither production nor a new project. This is why companies run into cash trouble while making a profit on paper.

So you have to factor your receivables, which means paying a discount on top just to reach your own money early. There is even an industry built on that need, Pollen VC opens a credit line against your store and ad network receivables. The same thing exists in Turkey, through Leus you take 80% of the revenue you have earned the next day and you do not wait out the 30-90 day term, though of course you have put one more system in the middle.

The publisher side works completely differently in the two models as well. On mobile the publisher takes on the whole UA expense and carries the risk, and genuinely earns the percentage it takes, and in return it expects a much tighter schedule and a much faster production cycle. On the PC side there is no set in stone publishing practice, everyone does as they please and every publisher has its own way of doing things. But across the industry, even when there is funding, the developer share moves between 80% and 50%. On the mobile side it can drop to around 20% depending on the UA spend. And there are PC publishers who expect the mobile split without taking the mobile risk.

The production of a premium game is more expensive in one go, that is true. But in F2P you have to keep pushing content out to hold the long tail and at the end of the day the total money going into production is higher. In premium, production largely ends at launch or drops to 1 in 10 of what it was, in F2P it continues for as long as the game lives.

The team side follows from that. The more money you put at risk, the bigger your failsafe mechanisms have to get, so you are stuck constantly hiring or holding on to people you can delegate the work to, just so the machine keeps turning. And you have to keep growing sideways and growing operations. From that angle the premium side sits in a much more manageable place, and one that can move into different verticals.

The UA money spent on mobile also circles like an ouroboros, it is largely handed around between games. When you see an ad for another game inside a game, the money is not leaving the industry, it is only changing hands. The ultimate winners are the ad networks, because they are the ones taking a cut on every change of hands.

Match 3 games that run without ads, like Royal Match, are not outside that loop either, they do not show ads but they buy them, and on that side they are among the biggest spenders in the market, so the ROAS arithmetic applies to them too.

The long term version of the gap between revenue and profit is on the IP side, and there the gap is a chasm. Very few mobile games have turned into IP and turning into IP is very hard, there is no guarantee at all that a sequel sells, and just about the only game that really got into franchising was Angry Birds. Sega bought Rovio for $776M in 2023, and there is no second row on that list. People on mobile can fool themselves with “we produce IP”, but what is actually being produced is a money machine rather than IP that is a net positive for game culture.

The reason is the money model again. In F2P you buy the audience from scratch on every game, so nothing accumulates and the second game starts UA from zero. On the premium side your followers, your wishlists, your franchise page and your More Like This placement carry over to the second game. You reach the same audience a second time for free.

The second reason is that the business model is built on an exit from the start. What is sold is not the game, it is the company, and the buyer is buying a working UA machine and a revenue multiple. Peak was sold for $1.8 billion in 2020 and that was Turkey’s first billion dollar exit.

If that is your goal you do not invest in IP that pays off in ten years, you invest in the metric that will look good at the moment of sale. That is why turnover is so high and why most founders who exit never start a second games company, the incentive is not in the game, it is in the exit. And that is usually about cementing your own position rather than creating any net value in the industry.

Platform independent F2P games that come out of PC can reach incredible IP value too. League of Legends, for one. Riot is a company built on keeping the game alive and on the LoL IP, while on the mobile side the company is set up from the start to be sold. This is exactly where mobile F2P and PC F2P part ways.

The side built on keeping the game alive produces the ground for that, culture forms there and that culture carries the IP. The Minecraft film reached $955M at the box office, and when the Fallout show came out European sales of Fallout 4 rose 7,500% within a week and did not go back to the old level after the show ended. There is no equivalent of this on the side built for an exit. The game makes money but most of the time leaves nothing behind, the other side can make less and still leave something sellable behind.

So when you hear a number for a game or a studio, drop the revenue and ask what was left over. Which revenue was the ROAS measured on, how many months later does the money reach them, and how much of it sits locked up outside during that time. Ask the same question on your own side, whether your company is built to keep a game alive or built to be sold, because that is what decides whether anything is left behind you. This is broadly why mobile’s success has not shown up in the industry as money and resources.

The money mobile makes is real, most of it just does not stay with you. And what is left mostly does not leave anything behind you.